Subject: File number S7-09-09

July 28, 2009

I am writing to express our firm’s views in connection with the proposed amendments to Rule 206(4)-2, the “Custody Rule.” While we strongly support measures designed to protect investors, we oppose one element of the proposed amendments, specifically the surprise audit requirement for advisors deemed to have custody of client assets, where that custody is based solely on the fact that the advisor’s fees may be deducted from accounts maintained at independent qualified custodians. In those situations the audit requirement is enormously costly and burdensome, and bears little relationship to the very problems the proposed Custody Rule amendments are designed to address.

Our firm, Westmount Asset Management, Inc., has been a registered investment advisor since 1990, and currently manages over $900 million. Nearly all of the assets under our management are held in brokerage accounts at independent qualified custodians like Charles Schwab & Co. or TD Ameritrade. (We also manage a small private equity fund of funds, which is deemed to be under our custody. For those assets we are subject to a surprise annual audit, so we fully understand the need for such an audit and the implications of what the audit requirement entails.)

By maintaining our clients’ assets in the custody of an independent firm, our clients have the security and protection that comes from independent custody, something that was not present in situations like the Madoff case. Independent custody provides the best protection for investors from dishonest managers like Madoff and others, who had direct custody of and access to their clients’ assets. With independent custody, investors have a highly regulated and audited entity to provide safekeeping of their assets. In addition, investors receive monthly statements and trade confirmations from their separate asset custodian, and have the independent ability to view, monitor, and verify their advisors’ actions in managing their accounts.

Where independent custody exists, an investor’s security is not imperiled by an advisor who merely has the ability to withdraw their fees from the accounts. Both our firm and the independent custodian provide clear notice to the client of the fee withdrawal (in our quarterly reporting packages and on the custodian’s monthly statement).

Imposing an annual audit requirement does not add a material protection beyond what already exists when an investor has an independent custodian, but it would impose a huge cost and burden on every advisor. It also doesn’t seek to address what was at the core of situations like the Madoff case. In those situations, unscrupulous advisors took advantage of the fact that they had actual and direct custody of their clients’ assets. Those situations did not involve advisors of clients using independent custodians, in which an advisor with mere fee withdrawal authority somehow used that authority to misappropriate client funds.

Thank you for the opportunity to comment on the proposed amendments to the Custody Rule.

Respectfully submitted,

James E. Berliner
Westmount Asset Management, Inc.